East Coast Marina has 65,000 shares of stock outstanding. The current market value of the firm is $2.87 million. The company has capital in excess of par value of $1.09 million on its balance sheet. The company is planning a stock split of five-for-four. What will be the market price per share after the split?

Question

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The market value of the firm is $2.87 million, and there are 65,000 shares outstanding. The current market price per share is $2.87 million / 65,000 = $44.15. After a five-for-four stock split, the number of shares will increase to (65,000 * 5/4) = 81,250 shares. The total market value of the firm remains the same at $2.87 million, so the new market price per share is $2.87 million / 81,250 = $35.32.

East Coast Marina Has 65,000 Shares of Stock Outstanding